No Items in Cart
Sign In
Loading Profile
English
COVID-19: How Kennametal is responding

Kennametal Inc. today reported fiscal 2003 third quarter earnings of $0.27 per diluted share compared with earnings of $0.42 per diluted share last year. Excluding special items in each period, diluted earnings per share were $0.38 for the quarter, against last year's earnings per share of $0.53. In accordance with SEC Regulation G, the attached financial charts include a reconciliation of all non-GAAP financial measures in this release to the most directly comparable GAAP measure.

As expected, fiscal 2003 third quarter earnings included $0.08 dilution from the Widia acquisition, and $0.04 of reduced pension income.

                Earnings Per Share Excluding Special Items

      Company Guidance (03/27/03)               $0.33 to $0.35
      Analyst Estimate Range (04/25/03)         $0.33 to $0.35
      Earnings, Excluding Special Items             $0.38

Through the first nine months, diluted earnings per share were $0.65, above last year's loss per share of $7.23. Excluding special items in each period, diluted earnings per share were $0.96 against last year's earnings per share of $1.28. The prior year included a non-cash SFAS 142 impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets."

Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We continued our disciplined management of the business through a quarter challenged by a faltering global economy. I was particularly pleased that our relentless focus on working capital management contributed to another quarter of strong cash flow. Despite significant weakness in our key North American and European markets in what is historically our strongest quarter of the year, we again improved our gross margins as the Kennametal Lean Enterprise, prior restructurings and ongoing pricing discipline continued to deliver additional benefits. In addition, I remain very pleased with the rapid pace and productive execution of the Widia integration. Our strong market position in all major markets is allowing Kennametal to weather a sustained period of stagnation in manufacturing."

  Third Quarter Highlights
  --  Sales of $459.2 million were 17 percent above last year's $393.9
      million.  Sales growth was driven by a 12 percent positive benefit
      from net acquisitions and divestitures and a 4 percent benefit from
      foreign currency exchange.

  --  Gross profit margin, excluding special charges in both periods, was
      33.1 percent, an increase of 40 basis points compared with the third
      quarter of fiscal 2002.  Manufacturing efficiencies from the
      Kennametal Lean Enterprise and a benefit from foreign currency
      exchange offset the combination of lower Widia margins and $0.5
      million in decreased pension income.  Reported gross profit margin of
      33.0 percent increased 60 basis points versus the prior year quarter.

  --  Operating expense for the quarter increased 26 percent, to $120.8
      million, excluding special charges.  Excluding $14.5 million in Widia
      operating expense, $7.4 million unfavorable foreign currency exchange
      and $1.7 million in decreased pension income; operating expense was
      just 2 percent above prior year.  Reported operating expense of
      $122.6 million was 28 percent over the prior year.

  --  The current quarter included net special charges of $5.2 million, or
      $0.10 per diluted share, primarily associated with the previously
      announced Widia integration efforts.  Prior-year results included
      special charges of $5.2 million, or $0.11 per diluted share,
      associated with previously announced restructurings.  The charges
      were divided approximately evenly between the J&L/FSS business
      improvement plan and the Metalworking and Electronics plan.

  --  Interest expense of $9.0 million was 21 percent above the same
      quarter last year on a higher average debt for the quarter,
      associated with the Widia acquisition, and higher average borrowing
      rates.

  --  As expected, the effective tax rate, for the March 2003 quarter was
      30.0 percent, compared with prior year of 32.0 percent.

  --  Excluding special items, net income was $13.3 million for the
      quarter; a 20 percent decrease compared to net income of $16.7
      million last year including the impact of Widia dilution and reduced
      pension income.  Reported net income was $9.7 million against net
      income of $13.1 million in the same quarter last year.

  --  Decreased pension income reduced earnings per diluted share by $0.04
      for the quarter versus the prior year.  Pretax income for the quarter
      was reduced by $2.2 million (non-cash) compared to the same period in
      fiscal 2002 due to the effect of a decrease in the expected rate of
      return on Kennametal's pension fund assets, coupled with lower
      discount rates associated with pension and other postretirement
      benefit liabilities.

  --  Free operating cash flow remains strong and on plan at $26.7 million,
      versus $33.1 million in the same period last year.  Primary working
      capital continues to be tightly controlled with its ratio to sales at
      27.6 percent, versus 28.1 percent in the prior year.  Primary working
      capital of $523.9 million was up 23 percent, or $99 million, from the
      same period last year entirely due to the impact of the Widia
      acquisition.

  --  Total debt was $580 million, up $169 million from June 2002, due to
      the closing of the Widia acquisition.

  Outlook

Global economic conditions remain weak at the beginning of the June quarter, and visibility continues to be very poor. Economic indicators in North America are mixed, with growth in durable goods orders overshadowed by weak March reports on industrial production, capacity utilization and the Institute of Supply Management (ISM - formally NAPM) index. The outlook in Europe is even more uncertain, with Germany in particular at risk for further declines based on the most recent macroeconomic indicators.

Tambakeras said, "While weak markets are expected to constrain our top- line in the June quarter, we continue to execute on key initiatives positioning the company to leverage earnings growth when the global economies recover. As the new head of metalworking, Carlos Cardoso will advance programs to further differentiate the solutions that we provide our customers. The Widia integration will continue to enhance the breadth of our product offerings and our global reach, particularly into growing Asian markets. These will be supported by ongoing product innovation, efficiencies from the Kennametal Lean Enterprise, and sustained cash flow generation."

Based on assumptions that the second quarter of calendar 2003 will be similar to the just completed March quarter, sales for the fourth quarter of fiscal 2003 are expected to grow 15 to 18 percent year-over-year. Reported diluted earnings per share are expected to be $0.17 to $0.37 per share. This includes an estimate for special charges associated with the Widia integration and restructuring programs of approximately $0.06 to $0.21 per share. Excluding these charges, diluted earnings per share are forecasted to range from $0.38 to $0.43 per share. The earnings forecast also includes $0.02 of dilution from Widia.

Kennametal anticipates net cash flow provided by operating activities of approximately $150 to $155 million for the year. Purchases of property, plant and equipment and proceeds from disposals of property, plant and equipment are expected to be approximately $50 to $55 million, net. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate at least $100 million of free operating cash flow for the year, per earlier guidance.

As previously announced, a reduction in pension income is lowering diluted EPS for the fiscal year by $0.17 per share, or approximately $0.04 per share per quarter.

Kennametal advises shareholders to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.

Dividend Declared

Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 23, 2003, to shareowners of record as of the close of business May 9, 2003.

Third quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.

This release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe," and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward- looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in- class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With about 14,500 employees worldwide, the company's annual sales approximate $1.8 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at www.kennametal.com.

FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. for the quarters and nine-month periods ended March 31, 2003 and 2002 are shown in the following tables (in thousands, except per share amounts).

   Consolidated Statements of Income

                                    Quarter Ended       Nine Months Ended
                                      March 31,             March 31,
                                   2003      2002       2003        2002

  Net sales                      $459,243  $393,852  $1,295,192  $1,180,844

          Cost of goods sold      307,582   266,205     875,079     806,893

  Gross profit                    151,661   127,647     420,113     373,951

          Operating expense(1)    122,592    95,695     343,104     288,711

          Restructuring and
           asset impairment
           charges                  3,269     3,944      11,649      22,650

          Amortization of
           intangibles              1,196       728       3,310       2,107

  Operating income                 24,604    27,280      62,050      60,483

          Interest expense          8,979     7,421      27,058      25,076

          Other expense
           (income), net(2)           713       (14)       (414)       (179)

  Income before provision for
   income taxes and minority
   interest                        14,912    19,873      35,406      35,586

  Provision for income taxes        4,474     6,359      10,622      11,387

  Minority interest                   739       370       1,786       1,071

  Income before cumulative
   effect of change in accting.
   principle                        9,699    13,144      22,998      23,128

  Cumulative effect of change in
   accounting principle, net of
   tax(3)                               -         -           -    (250,406)

  Net income (loss)                $9,699   $13,144     $22,998   $(227,278)

  Diluted earnings (loss) per
   share                            $0.27     $0.42       $0.65      $(7.23)

  Dividends per share               $0.17     $0.17       $0.51       $0.51

  Diluted weighted average
   shares outstanding              35,480    31,553      35,412      31,454

  (1)  For the quarter and nine months ended March 31, 2003, these amounts
       include charges of $1.8 million and $3.8 million, respectively, for
       integration activities related to the Widia acquisition.

  (2)  For the quarters ended March 31, 2003 and 2002, these amounts
       include charges of $0.4 million and $0.5 million, respectively, for
       fees incurred in connection with the company's accounts receivable
       securitization program.  For the nine months ended March 31, 2003
       and 2002, these amounts include similar charges of $1.5 million and
       $2.0 million, respectively.

  (3)  For the nine months ended March 31, 2002, this amount represents a
       non-cash charge for the adoption of Statement of Financial
       Accounting Standards No. 142, "Goodwill and Other Intangible
       Assets."

In addition to reported results under U.S. GAAP for the fiscal periods, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items, free operating cash flow and primary working capital (which are non-GAAP measures), to the most directly comparable GAAP measures.

  RECONCILIATION TO GAAP - QUARTER ENDED MARCH 31,

                                                                     Diluted
                                                                    Earnings
                                 Gross   Operating Operating   Net     Per
                                 Profit   Expense   Income   Income   Share
  2003 Reported Results         $151,661  $122,592  $24,604   $9,699  $0.27
    MSSG Restructuring                 -         -    1,077      754   0.02
    AMSG Restructuring                 -         -    1,104      773   0.02
    Corporate Restructuring            -         -      278      195   0.01
    Widia Integration Costs - MSSG   144    (1,767)   1,911    1,337   0.04
    Widia Integration Costs - AMSG     -       (18)      18       13    -
         Total Core Business         144    (1,785)   4,388    3,072   0.09
    J&L Restructuring                  -         -      801      561   0.02
    FSS Restructuring                  -         -        9        6    -
         Total Non-Core Business       -         -      810      567   0.02
  2003 Results Excluding
   Special Items                $151,805  $120,807  $29,802  $13,338  $0.38


  2002 Reported Results         $127,647   $95,695  $27,280  $13,144  $0.42
    MSSG Restructuring               160         -    1,904    1,295   0.04
    AMSG Restructuring               554         -      619      421   0.01
    Corporate Restructuring            -         -        3        2    -
         Total Core Business         714         -    2,526    1,718   0.05
    J&L Restructuring                507         -    2,375    1,616   0.05
    FSS Restructuring                  -         -      264      179   0.01
         Total Non-Core
          Business                   507         -    2,639    1,795   0.06
  2002 Results Excluding
   Special Items                $128,868   $95,695  $32,445  $16,657  $0.53


   RECONCILIATION TO GAAP - NINE MONTHS ENDED MARCH 31,

                                                                    Diluted
                                                                     Earn./
                                                                      Loss)
                          Gross    Operating   Operating  Net Income   Per
                          Profit    Expense      Income   / (Loss)    Share
  2003 Reported Results  $420,113   $343,104     $62,050    $22,998   $0.65
    MSSG Restructuring          -          -       5,926      4,148    0.12
    AMSG Restructuring          -          -       3,182      2,227    0.06
    Corporate Restructuring     -          -       1,236        865    0.02
    Widia Integration Costs
     - MSSG                   198     (3,784)      3,982      2,787    0.08
    Widia Integration Costs
     - AMSG                     -        (22)         22         16     -
         Total Core Business  198     (3,806)     14,348     10,043    0.28
    J&L Restructuring           -          -       1,267        888    0.03
    FSS Restructuring           -          -          38         26     -
         Total Non-Core
          Business              -          -       1,305        914    0.03
  2003 Results Excluding
   Special Items         $420,311   $339,298     $77,703    $33,955   $0.96



  2002 Reported Results  $373,951   $288,711     $60,483  $(227,278) $(7.23)
    MSSG Restructuring        160          -       8,141      5,536    0.18
    AMSG Restructuring      1,304          -       6,573      4,470    0.14
    Corporate Restructuring     -          -         160        109     -
    MSSG ( Adoption of SFAS
     142)                       -          -           -    168,314    5.36
    AMSG ( Adoption of SFAS
     142)                       -          -           -     82,092    2.61
         Total Core
          Business          1,464          -      14,874    260,521    8.29
    J&L Restructuring         906          -       9,846      6,694    0.21
    FSS Restructuring           -          -         300        204    0.01
         Total Non-Core
          Business            906          -      10,146      6,898    0.22
  2002 Results Excluding
   Special Items         $376,321   $288,711     $85,503    $40,141   $1.28


  SEGMENT DATA:
                                    Quarter Ended       Nine Months Ended
                                      March 31,              March 31,
                                   2003      2002        2003        2002
  Sales:
  Metalworking Solutions and
   Services Group                $297,995  $224,971    $824,143    $666,006
  Advanced Materials Solutions
   Group                           79,039    72,879     231,038     227,498
  J&L Industrial Supply            51,729    58,873     148,012     173,997
  Full Service Supply              30,480    37,129      91,999     113,343
  Total Sales                    $459,243  $393,852  $1,295,192  $1,180,844

  Sales By Geographic Region:
  Within the United States       $239,565  $253,905    $708,195    $762,140
  International                   219,678   139,947     586,997     418,704
  Total Sales                    $459,243  $393,852  $1,295,192  $1,180,844

  Operating Income (Loss), as
   reported:
  Metalworking Solutions and
   Services Group                 $24,156   $25,999     $66,488     $68,080
  Advanced Materials Solutions
   Group                            8,757     6,988      25,153      16,699
  J&L Industrial Supply             1,323     1,208       5,209      (1,725)
  Full Service Supply                  31       380        (320)      1,799
  Corporate and Eliminations       (9,663)   (7,295)    (34,480)    (24,370)
  Total Operating Income          $24,604   $27,280     $62,050     $60,483

  Operating Income (Loss),
   excluding special charges:
  Metalworking Solutions and
   Services Group                 $27,144   $27,903     $76,396     $76,221
  Advanced Materials Solutions
   Group                            9,879     7,607      28,357      23,272
  J&L Industrial Supply             2,124     3,584       6,476       8,122
  Full Service Supply                  40       644        (282)      2,099
  Corporate and Eliminations       (9,385)   (7,293)    (33,244)    (24,211)
  Total Operating Income          $29,802   $32,445     $77,703     $85,503


  OPERATING INCOME RECONCILIATION:

  QUARTER ENDED MARCH 31,
                                                                 Corporate
                                                                     &
                                                                Eliminations
                                     MSSG     AMSG    J&L    FSS
  2003 Reported
   Operating Income                $24,156  $8,757  $1,323   $31  $(9,663)
     Restructuring                   1,077   1,104     801     9      278
     Widia Integration Costs         1,911      18       -     -        -
  2003 Operating Income
   Excluding Special Charges       $27,144  $9,879  $2,124   $40  $(9,385)

  2002 Reported
   Operating Income                $25,999  $6,988  $1,208  $380  $(7,295)
     Restructuring                   1,904     619   2,376   264        2
     Widia Integration Costs             -       -       -     -        -
  2002 Operating Income
   Excluding Special Charges       $27,903  $7,607  $3,584  $644  $(7,293)

  NINE MONTHS ENDED MARCH 31,

                                                                  Corporate
                                                                      &
                                                                Eliminations
                                 MSSG     AMSG      J&L     FSS
  2003 Reported
   Operating Income            $66,488   $25,153   $5,209   $(320) $(34,480)
    Restructuring                5,926     3,182    1,267      38     1,236
    Widia Integration Costs      3,982        22        -       -         -
  2003 Operating Income
   Excluding Special Charges   $76,396   $28,357   $6,476   $(282) $(33,244)

  2002 Reported
   Operating Income            $68,080   $16,699  $(1,725) $1,799  $(24,370)
    Restructuring                8,141     6,573    9,847     300       159
    Widia Integration Costs          -         -        -       -         -
  2002 Operating Income
   Excluding Special Charges   $76,221  $23,272   $8,122  $2,099  $(24,211)


  RECONCILIATION TO GAAP - CASH FLOW INFORMATION

                                         Quarter Ended    Nine Months Ended
                                           March 31,          March 31,
                                         2003     2002     2003      2002

  Net income                            $9,699  $13,144  $22,998  $(227,278)
  Adoption of SFAS 142                       -        -        -    250,406
  Other non-cash items                   2,994     (545)   9,330     17,676
  Depreciation and amortization         21,839   17,935   61,819     55,237
  Change in primary working capital       (747)   5,780   17,928     43,996
  Change in other assets and
   liabilities                           6,238    4,729    3,359    (28,013)
  Net cash flow provided by operating
   activities                           40,023   41,043  115,434    112,024

  Purchases of property, plant and
   equipment                           (13,955) (10,235) (35,966)   (30,349)
  Proceeds from disposals of property,
   plant and equipment                     661    2,274    1,504      5,799
  Free operating cash flow             $26,729  $33,082  $80,972    $87,474


  CONDENSED BALANCE SHEETS
                                                       Quarter Ended
                                                   3/31/03       12/31/02
  ASSETS
  Cash and equivalents                             $17,250        $18,155
  Accounts receivable, net of allowance            235,908        199,261
  Inventories                                      408,996        403,530
  Deferred income taxes                             81,651         80,204
  Other current assets                              44,286         53,868
    Total current assets                           788,091        755,018
  Property, plant and equipment, net               476,208        480,066
  Goodwill and Intangible assets, net              491,987        478,060
  Other assets                                     107,159        104,937
    Total                                       $1,863,445     $1,818,081

  LIABILITIES
  Short-term debt                                  $15,068        $17,591
  Accounts payable                                 120,981         92,114
  Accrued liabilities                              208,816        171,726
    Total current liabilities                      344,865        281,431
  Long-term debt                                   565,067        599,425
  Deferred income taxes                             38,382         46,801
  Other liabilities                                140,550        135,101
    Total liabilities                            1,088,864      1,062,758

  MINORITY INTEREST                                 18,070         17,594

  SHAREOWNERS' EQUITY                              756,511        737,729

    Total                                       $1,863,445     $1,818,081


                                                Quarter Ended
                                      9/30/02       6/30/02     3/31/02
  ASSETS
  Cash and equivalents                $14,300       $10,385     $10,705
  Accounts receivable, net of
   allowance                          221,313       179,101     168,094
  Inventories                         403,590       345,076     351,129
  Deferred income taxes                71,084        71,375      82,949
  Other current assets                 40,110        31,447      28,064
    Total current assets              750,397       637,384     640,941
  Property, plant and equipment,
   net                                480,696       435,116     438,505
  Goodwill and Intangible assets,
   net                                467,140       367,992     370,324
  Other assets                        109,225        83,119      60,458
    Total                          $1,807,458    $1,523,611  $1,510,228

  LIABILITIES
  Short-term debt                     $16,992       $23,480    $383,639
  Accounts payable                    101,823       101,586      93,810
  Accrued liabilities                 171,045       137,034     152,867
    Total current liabilities         289,860       262,100     630,316
  Long-term debt                      599,615       387,887     164,257
  Deferred income taxes                53,475        52,570      52,564
  Other liabilities                   125,816        96,421      88,720
    Total liabilities               1,068,766       798,978     935,857

  MINORITY INTEREST                    17,685        10,671       8,907

  SHAREOWNERS' EQUITY                 721,007       713,962     565,464

    Total                          $1,807,458    $1,523,611  $1,510,228


               SUPPLEMENTAL INFORMATION AND RECONCILIATIONS

  RECONCILIATION TO GAAP: PRIMARY WORKING CAPITAL

                                                  Quarter Ended March 31,
                                                  2003               2002

  Current assets                                 788,091            640,941
  Current liabilities                            344,865            630,316

  Working capital in accordance with GAAP        443,226             10,625

  Excluded items:
  Cash and cash equivalents                      (17,250)           (10,705)
  Deferred income taxes                          (81,651)           (82,949)
  other current assets                           (44,286)           (28,064)
                                                (143,187)          (121,718)

  Adjusted current assets                        644,904            519,223

  Short-term debt                                (15,068)          (383,639)
  Accrued liabilities                           (208,816)          (152,867)
                                                (223,884)          (536,506)

  Adjusted current liabilities                   120,981             93,810

  Primary working capital                        523,923            425,413

Primary working capital is defined as accounts receivable, net of allowance for doubtful accounts, plus inventories minus accounts payable.

SOURCE: Kennametal Inc.

CONTACT: Beth A. Riley, Investor Relations, +1-724-539-6141, or Riz
Chand, Media Relations, +1-724-539-4662, both of Kennametal